Hollywood gears up for more tough times in 2009

Sue Zeidler

4 Min Read

LOS ANGELES (Reuters) - The economic crisis and the threat of another labor strike are creating a “perfect storm” for Hollywood as major studios to brace for further layoffs early next year, according to studio executives and analysts.

Tourists pause on a walkway at a shopping mall which offers a view of the famed Hollywood sign at the hills in California March 14, 2008. REUTERS/Fred Prouser

“Indicators for Hollywood don’t look good right now, based on the economy and the potential actor’s strike. Layoffs around the studios would not surprise me,” said Kurt Scherf, an analyst with consulting firm Parks Associates.

Job cuts have already swept through some media companies. This month, General Electric Co’s NBC Universal, home to Universal Pictures, said it would cut 500, or 3 percent, of its staff, while Viacom Inc, owner of Paramount, cut 850, or 7 percent, of its workforce.

Layoffs at those companies’ respective film studios totaled 70 at Universal and 150 at Paramount, say studio executives.

Sony Pictures’ parent, Sony Corp, has already announced 8,000 job cuts chiefly from its electronics division, but various Hollywood insiders say they believe the studio will cut jobs in January.

Sony Pictures declined to comment, but a source familiar with the studio said it had already started lowering costs by reducing travel expenses, overtime and restricting the filling of open or newly vacant positions.

Job cuts are also expected to be announced at Warner Bros in early 2009, said one executive familiar with the studio.

“We are currently assessing our operations to determine if the company is appropriately structured for today’s extremely challenging economic environment,” said Warner Bros Entertainment spokesman Scott Rowe, who declined to comment on potential job cuts.

Two spokespeople for Disney studios and ABC network declined to comment for this story.

Disney Chief Executive Robert Iger said in November that senior executives were looking at ways to reduce expenses companywide and that significant savings will be delivered. Chief Financial Officer Tom Staggs said last week he and Iger were pleased with cost savings now under way at the company’s four businesses.

Meanwhile, the Screen Actors Guild, is locked in a contract dispute and calling for members to authorize leaders to call a strike roughly one year after a 100-day screenwriters strike paralyzed the industry.

Another work stoppage would cause a major pullback in production already downsized due to the economy.

Jonathan Handel, an entertainment lawyer and blogger, told investors on a conference call on Thursday that there was a real possibility of a strike.

“If one occurs, I believe it will be long and bitter,” he said, noting that a six- to nine-month halt to production would seriously hamper the industry’s 2010 film slates.

The economic and labor issues compound the industry’s already existing challenges in a maturing DVD market and the drying up of billions of dollars in private equity funding for making movies.

Nevertheless, some analysts believe the layoffs are an overreaction for an industry more recession-proof than others.

“I think home entertainment is still pretty resilient to the recession. I think you’re seeing Hollywood overreacting as it tends to do,” said Thomas Arnold, publisher of Home Media Magazine, who believes total U.S. DVD sales will drop 2 percent to 3 percent in 2008, a tad better than a 4.8 percent drop in 2007.

Harold Vogel of Vogel Capital Management agreed.

“Companies are looking to cut costs where ever possible, but that is not a growth strategy and might, in fact, be very shortsighted,” he said. “Laying staff off lowers productivity and is expensive when you factor in severance and the fact you have to rehire people at a premium when business picks up again.”